Expanding Airport Facilities And Commercial Spaces Will Improve Future Prospects

Key Takeaways

• Expansion of airport facilities and commercial spaces is expected to enhance future revenue and earnings growth.
  
• A strong balance sheet with low debt and high cash supports long-term investment opportunities and earnings growth.
  
• Passenger and profit challenges stem from engine issues, capacity cuts, reduced international traffic, rising costs, policy uncertainties, and shifting travel preferences.

Catalysts

Grupo Aeroportuario del Sureste, S. A. B.

• Colombia's strong passenger traffic growth, driven by both domestic and international travel, is expected to continue as airlines like Avianca and LATAM regain lost routes. This could lead to increased revenue and net income from higher passenger volumes in this region.
  
• The planned expansions and reconstructions at Cancun and Oaxaca Airports, including Terminal 4 and Terminal 1 at Cancun, aim to improve capacity and passenger flow, which could boost future revenues and earnings as these enhancements come online.
  
• Adjustments in aeronautical tariffs in Mexico have led to a significant increase in aeronautical revenue. Continued revenue growth in this segment is expected to positively impact earnings, given Mexico's major contribution to the company's revenue.
  
• ASUR's strategy of opening 54 new commercial spaces across its operations, particularly in Colombia and Puerto Rico, has led to increased commercial revenues. This expansion of commercial offerings is likely to further enhance revenue and margin growth.
  
• ASUR's robust balance sheet, characterized by high levels of cash and low debt relative to EBITDA, positions the company to capitalize on future investment opportunities that may arise, potentially driving long-term earnings growth.

Grupo Aeroportuario del Sureste S. A. B. de C. V Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Grupo Aeroportuario del Sureste S. A. B. de C. V's revenue will grow by 11.5% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 43.4% today to 39.9% in 3 years time.
• Analysts expect earnings to reach MX$16.2 billion (and earnings per share of MX$53.57) by about December 2027, up from MX$12.7 billion today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as MX$13.3 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 19.1x on those 2027 earnings, up from 12.7x today. This future PE is greater than the current PE for the US Infrastructure industry at 9.7x.
• Analysts expect the number of shares outstanding to grow by 0.2% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 16.32%, as per the Simply Wall St company report.

Grupo Aeroportuario del Sureste S. A. B. de C. V Future Earnings Per Share Growth

Risks

• Passenger traffic in Mexico fell by 10% year-on-year, attributed to challenges like the Pratt & Whitney engine issues and capacity reductions at Mexico City Airport, which could continue to suppress revenues if not resolved promptly.
  
• Reduced international traffic from key regions such as the U.S., Europe, Canada, and South America means lower aeronautical and non-aeronautical revenues, impacting overall profitability.
  
• Increased costs and expenses, rising by 18% year-on-year, primarily due to higher concession fees and minimum wages in Mexico, could further erode net margins despite revenue growth.
  
• Uncertainty regarding the continuity of Mexican government policies and potential new administrative decisions might pose a risk to future operations and aeronautical revenues in the region.
  
• Competition from other tourist destinations and the shift in U.S. travel preferences could limit the growth potential of international traffic and consequently earnings from the Mexican segment.
  

Valuation

• The analysts have a consensus price target of MX$650.71 for Grupo Aeroportuario del Sureste S. A. B. de C. V based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of MX$800.0, and the most bearish reporting a price target of just MX$546.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be MX$40.5 billion, earnings will come to MX$16.2 billion, and it would be trading on a PE ratio of 19.1x, assuming you use a discount rate of 16.3%.
• Given the current share price of MX$535.26, the analyst's price target of MX$650.71 is 17.7% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.